You want short ans or essay?
In short, safety and liquidity go together. Safety as required by
reserve requirement, is a regulation by the central banks on all
banks to keep some percentage of the bank assets liquid. Liquidity
meaning keeping some assets in cash or equivalent. This is to make
sure the bank have enough cash or liquid assets for its ordinary
transactions particularly with the customers, as well as keeping
part of their money safe. You wouldnt want to go to a bankrupt bank
and they can only give you a peice of land which you cant sell
right?
Profitability is not so important, but then again, whats the point
of setting up banks just merely to keep people money safe? You
would wanna invest using monies from the deposits, and using
profits to pay a bit of interest to customers so that they would
come in and deposit money.
Contradictory? Maybe. If you know its profitable to invest in real
estate, you would go for it, but then, real estate is not as liquid
as, lets say, gold or bonds. But in Singapore not much of a big
issue. They passed a law, that by July this year if i am not wrong,
banks cannot have non core, or non banking investments, or at least
not so signficiant amount of assets should be in non core
investments.
If u wanna noe more, go read a book. I ust give u the
gist.
